Medicare Prescription Drug Coverage

Drug Benefit TrendsPosted 06/15/2004

By Daniel B. MoskowitzWashington, DC-based Journalist

Curbing Activities of Card Issuers

The government warned the sponsors of Medicare-endorsed
drug discount cards that "payment arrangements between
discount drug sponsors and their network pharmacies in
connection with education, outreach, and enrollment services
may raise concerns under the anti-kickback statute." The April
8 guidance from the HHS Office of Inspector General (OIG)
acknowledges that retail pharmacies can be a prime venue to
communicate information about the new cards to seniors and
that pharmacies will incur costs in undertaking such
educational efforts. But it warns that it is "inherently
suspect" to tie any reimbursement provided to the volume of
bus iness or to the number of completed applications that a
pharmacy generates. Noted in the guidance was that one unnamed
plan had already proposed just such per-application bonus
payments.

To date, the Centers for Medicare and Medicaid Services
(CMS) has approved 40 private sponsors to issue Medicare drug
discount cards. In addition, 43 sponsors representing 84
Medicare Advantage health plans are offering cards to the
beneficiaries enrolled in the plans. Seniors sign up for the
cards directly with sponsoring organizations. A total of 49
different card programs are being offered, of which 30 are
available nationwide. Information is available online at " http://www.medicare.gov/ " and in print by
calling 800-MEDICARE to assist seniors in selecting a card
program to suit their individual circumstances. The cards are
expected to provide discounts on prescription drugs of 10% to
25% for middle- to upper- income Medicare beneficiaries.
Low-income Medicare beneficiaries may be eligible for a $600
annual credit.

The OIG advisory came the day after Mark B. McClellan, MD,
PhD, the new head of the CMS, said his agency is looking for
ways to make enrollment for the cards easier for seniors.
Among options being considered: a more widespread advertising
campaign; an outreach program aimed at health care
professionals who work with seniors; and a plan to
automatically enroll in a discount card plan everyone whose
income is low enough to be eligible for the $600 annual card
prepayment and who is already receiving prescription drug
assistance through a state program.

CMS is also expanding its efforts to be able to respond to
seniors' questions about the new prescription drug benefit.
CMS has increased the number of operators for its toll-free
Medicare information phone line from 380 to 1400. And by the
beginning of May, the agency planned to post on its Web site
comparisons of prescription drug costs offered through various
discount cards.

South Carolina Reconsiders Formulary Exemptions

South Carolina lawmakers may include more categories of
drugs in the state's program of encouraging Medicaid
recipients to select preferred drugs. Under a policy adopted
last year, a panel of physicians pick what the physicians
agree is the best drug in each therapeutic category. Other
drugs can win a place on the formulary, but only by giving the
state discounts in return for inclusion. Physicians can still
prescribe nonformulary drugs for their Medicaid patients but
only with prior approval.

Currently, the formulary does not cover medications for
cancer, asthma, or diabetes, leaving physicians free to select
any drugs they deem appropriate for those conditions. And
those exemptions are costing South Carolina as much as $8
million a year, SC HHS Director Robert Kerr testified on April
7. The exemptions for those drug categories will expire this
year, and Kerr's testimony kicked off a fight to let them die.
The pharmaceutical industry is split on the issue. Having a
company's drug picked as the preferred drug on the formulary
can boost sales, but not being selected also means lower
profits because of the required rebates.

Michigan Medicaid Formulary Okayed by Appellate Court

The pharmaceutical industry has been fighting the growing
movement among states to introduce a formulary as part of the
pharmacy benefit in state Medicaid programs that makes it
tougher for beneficiaries to get higher-priced brand-name
medications. On April 2, the US Court of Appeals in
Washington, DC, strongly endorsed the use of formularies. The
ruling tossed out objections that the Pharmaceutical Research
and Manufacturers of America (PhRMA) had raised to the
Michigan Medicaid program. The court's decision seems
applicable to similar programs in place in 25 other states as
well. Ten additional states have passed laws calling for
institution of a formulary in the Medicaid program, but these
laws have not yet been implemented.

The Michigan Medicaid program has previously withstood
PhRMA litigation in Michigan state courts and in the US
District Court in Washington. PhRMA, claiming that imposing a
formulary that would limit medication choices for the indigent
population runs counter to the aims of Medicaid, is now
considering whether to take the issue to the US Supreme
Court.

The Michigan approach divides all drugs into 40 therapeutic
categories and selects the least expensive drug in each
category to be placed on the formulary. Other drugs in the
same category can be added to the formulary but only if their
manufacturers offer the states rebates that will lower the
price to that of the least expensive drug. The Michigan
Department of Community Health says that the formulary has
saved the state around $40 million a year since it was
implemented in 2002 and slowed the average annual increase in
Medicaid prescription drug costs from 11% to 4.2%.

Key to the judges' okaying the formulary is a provision
requiring that prescriptions for off-formulary drugs be filled
as long as the prescribing physician phones the state's PBM
and explains his or her reasons for rejecting the preferred
medication. "The available data confirm that in practice the
prior authorization requirement has proved neither burdensome
nor overly time-consuming," said Judge Karen LeCraft
Henderson.

South Dakota: PBMs Must Disclose Rebates

As of July 1, South Dakota health plans that contract with
PBMs for their drug benefit will have a chance to learn the
details of their PBMs' financial arrangements with
pharmaceutical companies and drug repackagers. Under a new
lawopposed by the Pharmaceutical Care Management Association
(representing PBMs) but easily passed by both houses of the
state legislaturePBMs will have to respond to plan requests
for information, such as the amount of rebates and utilization
discounts they get from specific suppliers and the nature and
amount of any other revenue they receive. Plans will also have
the right to audit the PBMs with which they deal on an annual
basis. The idea, according to Gov Mike Rounds, who requested
the statute, is that customers of PBMs (including the state)
cannot bargain effectively for their drug contracts without
knowing how much is being paid in rebates.